Indian steel sector bounces back

"From dawn to dusk, steel surrounds our daily lives. Whether you're waking up, keeping time, getting in or logging on, steel is there making your everyday activity possible," says the World Steel Association which is something to keep in mind.
Against this backdrop, India has emerged to be one of the largest steel producers in the world. India is, currently, the 4th largest producer of crude steel in the world as against its 8th position in 2003. The country continues to maintain its lead position as the world's largest producer of Direct Reduced Iron (DRI) or Sponge Iron.
Driven by satisfactory demand, India's production has been showing an uptrend during the ongoing fiscal year too. The steel sector constitutes nearly 2.0 per cent of the country's GDP (gross domestic product) and employs over 600 thousand people. The per capita consumption of total finished steel in the country has risen from 51 kg in 2009-10 to about 60 kg in 2013-14.
The economy is steadily becoming set to be the world's second-largest producer of steel by 2015-16, by which time the steel production is slated to reach 137 million tonnes compared to the present level. Going by the current estimate of Rs. 40 billion investment per million tonne of additional capacity, the steel sector is expected to witness an estimated investment of Rs. 8706.40 billion by 2020.
India's capacity for crude steel production expanded from about 75 million tonnes per annum (mtpa) in 2009-10 to about 101.02 mtpa in 2013-14. Crude steel production grew at 7 per cent annually (CAGR) from 65.84 million tonnes in 2009-10 to 81.69 million tonnes in 2013-14. Production for sale of total finished steel (alloy + non-alloy) stood at 87.67 million tonnes during 2013-14, compared to 60.62 million tonnes in 2009-10, an average annual (CAGR) growth of around 9 per cent.
Real consumption of total finished steel (alloy + non-alloy) grew at a CAGR of 7.2 per cent during the last five years. Domestic real consumption of total finished steel (alloy + non-alloy) was at 74.09 million tonnes in 2013-14, which, in turn, increased by 0.83 per cent on a year-on-year basis. Export of total finished steel (alloy + non-alloy) during 2013-14 stood at 5.98 million tonnes while import of total finished steel (alloy + non-alloy) during 2013-14 stood at 5.45 million tonnes. India was a net exporter of total finished steel in 2013-14.
Actually, after a disastrous run in the last decade and also in the initial years of this decade, Indian steel sector has clearly rebounded - top global companies evincing keen interest to put up large integrated units here.
China, however, continues to reign high -- the world's leading steel producer with an annual turnover of around 422 million tonnes. Japan, with a production of 116 million tonnes, comes next. The USA comes third (98.6 million tonnes), Russia being the fourth-largest steel producer.
If the current trends are any indication, global steel capacity is likely to continue to grow since a number of governments have been continuously encouraging investors in the steel industry mainly to meet the infrastructure needs. Strong demand is also being created by the industrial sector's expansion.
All this is occurring due to the booming infrastructure in emerging economies especially.
SAIL (Steel Authority Of India Limited) has been doing pioneering works on this score.  It is on an aggressive drive to expand its market-reach in the country as well. The company had been building its dealer networks and also setting up new stockyards in the country. In order to make its steel available at the doorsteps of customers and increase the steel consumption in rural areas, it was setting up such stockyards in states like Jharkhand and Bihar. The steel giant has its presence felt in over 600 districts of the country through its network of stockyards.
Major initiatives taken by the Indian government in the very recent past also deserve special mention. The Steel & Steel Products (Quality Control) Orders, 2012, have come into effect from  October 01, 2014, on all 15 products having direct bearing on safety & security of human beings and infrastructure. Expansion of two steel plants (IISCO, Burnpur and Rourkela Steel Plant) is ready to be in place, thus adding about 4.7 million tonnes of crude steel capacity. Active engagement with the Ministry of Mines and Coal and also the Ministry of Environment and Forests has been undertaken for simplification of procedures.
The policy facilitated the formation of Indian Steel Association (ISA) to articulate the need and aspirations of the steel sector of the country. As a major step towards ensuring long-term security in the supply of cooking coal, ICVL has taken over the operating coal mine and coal assets of Rio Tinto in Mozambique.
This is also the trend set in the global context: such units forming an integral part of large steel companies. With the acquisition of Corus, Tata Steel has been able to transform itself from a local player into a global giant. It has now emerged as the sixth-largest steel producing company in the world in which the share of saleable steel stands at a towering 70 to 75 per cent (out of company's total sales).
This is high time a reasonable decision was taken in so far as export of our ore reserves is concerned. The country's own demand has been and would go up in the coming years. Quality of ores (hematite variety especially) is also one of the best. This should lead to steadily putting an end to export of such items.
The mineral policy should be a realistic one. But until now nothing of that sort in the comprehensive sense has been clearly in existence in India.
Though the large-scale operations would help in getting a footprint in newer markets (viz. the US, Europe and Canada) it should not be forgotten that raw material availability continues to be a matter of big concern. Acquiring of more iron ore and coal mines around the world is no child's play. In fact, the raw materials' prices in the recent past have risen to newer heights as steel production continues with the upswing trends.
As per the current thinking on this score, despite significant investments to increase production of some raw materials, trade-distorting export restrictions as well as infrastructure problems in some of the raw material markets, the sector has the potential to forge ahead.
The OECD (Organisation for Economic Cooperation and Development) analyses must be taken very seriously inasmuch as they have cautioned of the growing risks to the international steel market. The indication clearly states that while world demand for steel would continue to expand favourably, growing economic risks associated with housing market and associated other problems cloud the outlook, at least partially. Continued capacity expansions as observed in many parts of the world could well impact on the price front if demand growth slows down significantly. As capacity expansion continues to be there, abrupt slowdown in global demand has the potentialities to create trade friction to the detriment of the long-term health of the steel industry.
The future success of the steel industry obviously depends on the ability to manage the entire supply chain -- right from backward integration to forward linkages. The importance of downstream products is also no less -- ball bearing rings, alloy steel bearings (used in two wheelers, fans and motor pumps), ferromanganese and ferrochrome, cold-rolled steel products, galvanised steel sheets, etc. Steel is and will be in much demand in the sectors like aerospace, construction, automotive industry, railways as well as in consumer products.
 Given this reality, the overall outlook for the steel sector is very much a positive one.
 Dr. B. K. Mukhopadhyay, a management economist, is attached to the West Bengal State University. [email protected])